The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Here is one of the more amazing discussions in which I ever have participated. The well-known Barry Rithholz’s blog contained the article by David StockmanI referred to earlier. On Barry’s blog, I quoted Stockman, “. . .if we were serious about deficit reduction, we would be cutting spending EVERYWHERE and RAISING TAXES on not only the top 2%, but the upper and middle classes as well, ” then I wrote,

“1. There is no reason to reduce the deficit. In fact, reduced deficit growth has led to every depression and nearly all recessions. A growing economy requires a growing supply of money. The current myth that the deficit must be reduced is based on the false belief that federal budgeting is like personal budgeting, where debt is a burden.

2. In a Monetarily Sovereign government, there is zero relationship between taxes and spending. If taxes were reduced to $0, or raised to $100 trillion, neither would affect the federal government’s ability to spend. Federal taxes do not fund federal spending.”

In a subsequent comment, I asked, “Why do we need to reduce the federal deficit (or debt)? Any fact-based answers?” and a person called “KJ Foehr” responded:

I agree partially with your premise. The math does appear to indicate current deficits and debt are unsustainable, especially if (when) interest rates rise again. Deficits ARE good (stimulative) now, but I but do believe current levels are bad later (unsustainable long-term).
The problem is many ideologues and their drones do not see the good in it, and therefore, demand that it be reduced NOW. Some apparently actually believe significant cuts in government spending now will help reduce employment and improve the economy! What we have is a crisis of ignorance, not a crisis of government spending.

I responded to several subsequent comments with: “All of the solutions offered on this post involve either cutting benefits or raising taxes, either of which will hurt people and hurt the economy. Strangely, no one wishes to entertain the opposing view, as though hurting people and the economy were a good thing! My complaint about debt hawks is they reject the opposing view, without offering evidence to support their own view.”

The person called KJ Foehr then did an about-face and said,

“I disagree completely with this idea that neither borrowing nor taxes are necessary. If that were the case, then why doesn’t the government just eliminate taxes completely? Or is the sole purpose of taxes to reduce aggregate demand? How ridiculous. Please don’t respond; I don’t have time for wingnut theories and won’t be reading any more of your posts.”

So his “evidence” consists of “why doesn’t the government . . . ” as though the government always does things right. He finishes essentially by saying he doesn’t want to read anything that answers his questions or disagrees with his opinions.

Then someone called “Christopher” said,

“There is no reason to reduce the deficit. Blahbittyblahblahblahblah….. LOLOL.

In essence he seemed to be saying, “My eyes and ears are closed to anything other than what I already believe.” And finally, Barry said, “Dude, you really need to get your own blog.” rather than answering the simple question I posed, “Why do we need to reduce the deficit or debt?”

I wrote, “Barry is an intelligent man, who claims to understand MMT, but who never addresses the fundamentals of MMT. I gave reasons why the deficit and debt should not be reduced, but if you would like to see a more complete analysis, go to SUMMARY. For those who wish to learn, 10 minutes of reading can be worthwhile. Barry, you may wish to look at that page.”

Then, someone called “freemarketeer” asked,

Barry, curious as to what your take on Modern Monetary Theory is. I’ve been reading up on it recently, and it appears to describe our monetary system better than any other theory. It’s certainly bizarre from a traditional econ standpoint, but I’ve always thought traditional econ theories were stupid, full of half-baked behavioral assumptions.

Whatever your opinion of MMT, why would we raise taxes now? The economy isn’t exactly rip-roaring (despite record corporate earnings). I’m still skeptical we’ll keep it going as inflation continues working through the value chain.

Seems like a reasonable request, which I knew Barry would not honor, and I said so, as follows: “As for getting Barry’s opinion on MMT, good luck. He has three standard responses to MMT facts:
“You sovereign guys are dreadful bores”
“For the record, I completely understand your analysis — its just that I think its shite.” (his word)
And his absolute favorite, which he repeats endlessly, “Rodger: To the man whose only tool is a hammer, everything soon begins to look like a nail . . .

Once, when I asked why he felt the deficit and debt were too high, his response was “Telling the public that the federal debt and deficit are too high ? You got the wrong guy, bub.” Huh?? Isn’t that exactly what he is saying?

Anyway at one time, and with Barry’s agreement, I sent him an Email outlining 10 points from Monetary Sovereignty, as a discussion starter. Barry never responded. If you want to see it, I’ll Email it to you. Getting Barry to discuss facts is like getting Rand Paul to discuss . . . well, facts.”

And here is the most amazing response I ever have received from a nationally known columnist:

Barry Ritholtz Says: April 25th, 2011 at 10:21 am

freemarketeer: I have no opinion.

ROGER: Why do you think it is my responsibility to address subjects of your choosing? I get 1000 emails a day asking about this or that, and you make it a big deal that I dont stop doing what I am doing to answer YOR QUESTIONS IMMEDIATELY. If I dont respond to your email, its likely because its a subject that I am not interested in.

Here’s a newsflash: I write about what interest me — and to be blunt, I dont give a flying fuck about what interests you. That is why you have a blog — to write about your passions. I have a blog to write about mine.

I dont want anyone’s homework assignments. I get so many of these inane — WHY DONT YOU DO A POST ON THIS? or the ever popular WHAT DO YO THINK OF THAT? that I even put the NO HOMEWORK ASSIGNMENTS into my Terms of Use

Barry was screaming at me, while he redacted my earlier response. It probably was too embarrassing for him. I responded with a note that undoubtedly will not be published: “Gee, Barry, I offered to send you the bullet points and you agreed. If I had known you weren’t interested, I would have saved myself the work. The things of interest to MMT are exactly the things you write about. The fact that MMT (or Monetary Sovereignty) disagrees with some of your points is exactly why you should print them and respond to them with facts, not swearing.

That’s what makes a discussion worthwhile, not just having a bunch of people all repeating the same mantra: “Debt should be reduced; deficit should be reduced.” There are some good, solid reasons the deficit and debt should be increased. Why not discuss them?”

Oops, I just checked his blog and yep, he cut out this last comment. He seems loath to publish anything that disagrees with his views. But I have a prediction: When the world begins to accept Monetary Sovereignty or Modern Monetary Theory, Barry will say he knew it all the time.

By the way, Barry mentioned his “Terms of Use.” Here they are, which he repeats in every post:

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Think about it: “ignorance, unfamiliarity with empirical data, lack of respect and most of all, civility.” This is what unrestrained ego can do to a man.

========================================================================================================================================== No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”

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13 Responses to –A most amazing conversation. What unrestrained ego can do to intelligence

I am in my early 60s and began investing my savings in the mid 70s. I was particularly fascinated, at that time, with gold, after reading works by Harry Browne.

After gold became legal for US citizens to own once again, I watched it, with the same similar explanations for today’s rise, go straight up. Then came the Regan Administration and, relative to its past, explosive budget deficits. I then watch as the price of gold went straight down.

How could this be? If anything, with unprecedented deficits, the theory was gold should have continued its rise. I did not understand what was happening and have wrestled with the “why” for thirty years.

Over these thirty years, I continually anguished over every increase of the deficit, always hearing we have reached the wall of what is sustainable. Default was inevitable; foreigners would no longer buy our debt; US dollars would be worth zero. Obviously, none of which has happened.

After Nixon made the dollar irredeemable, if any adverse consequences were to affect the ability of the US to pay its debt or buy goods and services on international markets with dollars, it should have manifested itself then. After all, wasn’t this an actual default since gold was a form of money to settle international trade imbalances?

What did happen? Well – nothing, nada, zilch. Certainly, the world did not end; it never does, but more importantly, the ability of the US to be the worlds largest economy continued unabated, right along with its deficits.

Observably, the only answer to my “why” is Monetary Sovereignty. It is the only theory that makes sense for my real world perception. Its only drawback is the willingness to apply it (Congress), even if the understanding of it is absent.

It is disconcerting when very otherwise intelligent men close their minds to the possibilities for the advancement of modern civilization because we lack money. It appears we are still in the Dark Ages in our understanding of economics. No money for productive ends; no money for infrastructure; no money for R&D in energy, disease prevention or cure; no money for…..

Harry Browne. Haven’t seen that name in a while. Yes, I’m ashamed to admit I was a fan at one point, too. Even bought extra copies of his books to give away to friends. Then I actually became an entrepreneur, created some jobs, and met a payroll, and soon realized if I were honest with myself, there were lots of ways I relied on government. When I realized I was making libertarian arguments not because I believed them anymore but out of habit or a vague, irrational sense that I “ought” to make them, I cut it out and lost the faith. Were I to pick up a Harry Browne book today, I’d probably find it childish. Might still have one in a box in the garage under fifteen years of mouse droppings.

Mr. Browne’s book, the title I no longer remember, made the NY Times Best Sellers List, circa 1973-4, thereby producing yet another expert to whose theory we could freely embrace.

Not only is his writing childish if read today, most of what is currently written, passing as conventional wisdom, no longer makes any sense within the historical record of the last 40 years of Monetary Sovereignty.

Additionally, look to how current proponents of libertarianism, Ron and Rand Paul have shaped our political discourse. One proselytizes returning to the gold standard, the other proposes downsizing government shutting it down by no longer financing its operations.

In my opinion, the politician whose ideas have created the direst consequences is Ronald Reagan. Although taken out of original context, it is now the religious belief of his acolytes, “Government is not a solution to our problem, government is the problem.”

The NASA space program was almost entirely financed by government deficits. Authors have written books describing the technological advances that are a direct result from it. Entrepreneurs using the free market system have drawn on this to produce all the wonderful products that now enrich our lives.

Now Congress is cutting appropriations to this program, because of the deficits and the debt, which “everyone knows” are bad.

Thank you Rodger, for enlightening me, this most stupid peasant, on Monetary Sovereignty. I have, I hope, a simple question. Does a Monetarily Sovereign government ever have to fear something like a “Keynesian Endpoint”? I see that many doomsayers, like ZeroHedge with their recent post, “Pimco’s Observations As The US “Reaches The Keynesian Endpoint….” use that term.

I take a “Keynesian Endpoint” to mean that government deficit spending has some limit. But, as you and the MMT experts point out Japan keeps chugging merrily along even with the (apples to oranges) debt/GNP ratio reaching 200%. So perhaps there is no limit. Very confusing.

Is the point when interest payments on the debt (Treasury securities) becomes greater than tax revenue anything to worry about? Or can a Monetarily Sovereign nation keep sailing along past that threshold? It all seems a little scary to a poor bus boy, who work mostly for tips.

Uh oh. When someone tells me how stupid they are, I grab for my wallet.

Pimco has an ax to grind. The sold their T-securities, and now seem to want the U.S. economy to tank. The so-called Kenesian Endpoint, a phrase invented by Pimco, is a non-existent place populated by people whose brains have been addled by dollars. To use the technical term, it’s a hunk of baloney.

I’ve been trying to write a post that will explain Monetary Sovereignty in the simplest possible terms, something even a fictional bus boy can understand. So far, I’m down to 200 words.

Whenever I embark on learning a new course of study, the first thing I do is to become familiar with its terminology. After all, words have meaning.

Monetary Sovereignty is hard enough to wrap one’s mind around, all of us influenced by our bias of personal accounting and what we learned in Econ 101.

Words like deficit, and debt have negative connotations associated with their use. They are simply archaic in this modern world of sovereign money no long tethered to gold, or anything else.

I am not implying that they be eliminated. By all means continue to use them otherwise Monetary Sovereignty would be impossible to comprehend to anyone not familiar with its concept.

For this reason, may I make the following suggestion: whenever you use a dual meaning word that has a different meaning in each respective discipline, always define the MS meaning parenthecally: Conventional word (MS meaning)

This additional step adds clarity, and in time, your reader will have better understanding. Eventually, they themselves will use them interchangeably. Look how new words in the tech and web space have changed how people perceive the world.

In addition, I think it would be a good idea if you communicate with your friends in the MMT community to come up with a lexicon to define the words used in our de facto monetary system.

Roger, You say “In a Monetarily Sovereign government, there is zero relationship between taxes and spending. If taxes were reduced to $0 or raised to $100 trillion, neither would affect the federal government’s ability to spend.”

That’s true in the sense that it would be physically possible for govt to carry on spending given zero taxes, but the result would be ballooning household bank balances, which they’d spend. The result would be rampant inflation. I accept that a BIT of tax reduction is needed (perhaps along the lines of Warren Mosler’s payroll tax reduction), but zero taxes? That’s going too far.

Can I suggest you put your arguments in less a less dramatic and extreme form? E.g. I suggest the above quote should read something like “In a Monetarily Sovereign government, taxes and spending, within limits, are independent of each other.” Or instead of “within limits” you could say “to some extent”.

When I make the point that MMT involves having government print and spend money, I always add that given looming inflation, government should do the opposite, i.e. rein in money via extra tax and “unprint” it. The latter point keeps non-MMTers happy and helps win them over.